In case you didn’t hear the news yesterday, Cisco has agreed to buy Meraki for $1.2 Billion in cash and incentives. That’s a significant amount of money considering Meraki, a privately held company, had a run rate of $100 Million a year according to their CEO. And the key wording there is “run rate”, meaning they haven’t actually done $100 million yet, just forecasting that.
So why would Cisco be willing to pony up 12X the annual forecasted revenue? This is either a return to the over-valuation days of the dot.com boom…or maybe Cisco has made a bet on the future of networking.
Here are three things that stand out as significant to the future of the cloud and managed networks:
Cloud Managed Networks are Here to Stay
There’s been some debate in the industry on where to manage networks from. Should the management be on-premise or should it be hosted in a data center somewhere? Some customers (although the number seems to be getting smaller and smaller) don’t like the idea of pushing management tools into the cloud for security reasons. Meraki is a company that has pioneered some easy to use cloud based tools to manage networks. It’s interesting to note that Cisco has integrated Meraki into their Cloud Networking Group and not their wireless group. Clearly they think cloud managed networks are going to see a huge uptick in the coming years.
WiFi Networking is the Future
When you think about what Cisco does well you still think of wired networking. Yes, you also think about Unified Communications (which they have a great platform there) and now their server platform is getting more and more traction. But you don’t hear a lot about their wireless platform. The Meraki purchase tells you that they want to change that…and their betting big that wireless is the future of networking.
SAAS can and will be Adapted for Networking
Consider the current Cisco pricing model. You purchase the hardware, software, and support. It’s essentially a one-time product sale with the yearly support renewal which is a percentage of the hardware/software costs. With Meraki, you buy the hardware, but you can’t buy a perpetual license to the software. You buy a subscription to be able to use their cloud based wireless controller and network management system. This is a HUGE shift for Cisco…and something that the analysts seem to be overlooking when evaluating what this deal means to the industry. Cisco is looking for a shift in revenue sources as well. From a one-time purchase/refresh model to a software as a service model.
Whether Cisco paid too much is obviously a question that will be answered over time as we see how hey integrate the products into their existing systems and customer base. But the acquisition itself makes some clear statements about where the networking giant thinks the future is.